Term Sheet
A non-binding document outlining the key terms of an investment deal before final legal documents.
Definition
A term sheet is a summary of the proposed terms of an investment, typically 5-10 pages long. It covers valuation, investment amount, liquidation preferences, board composition, protective provisions, and other key terms. While mostly non-binding, the no-shop clause and confidentiality provisions are usually binding. The term sheet is negotiated between the lead investor and the company before lawyers draft final documents.
Why it matters
The term sheet determines the rules that govern your equity. Liquidation preferences, anti-dilution provisions, and board structure all flow from the term sheet. While you likely will not negotiate these, understanding them helps you assess what your shares are really worth.
Example
A Series A term sheet might specify: $10M investment, $40M pre-money valuation, 1x non-participating liquidation preference, one board seat for the investor, standard protective provisions, and a 20% option pool.